Bernstein analyst Stacy Rasgon today reiterates a Market Perform rating on Qualcomm (QCOM), writing that the company appears to be talking out of two sides of its mouth, with the result that it is perhaps misleading investors about the risk involved in its legal dispute with Apple (AAPL)

Rasgon notes that Qualcomm has taken a different tone in its statements to investors around its financial reporting versus what it is saying in court.

"We understand that language is often shaded differently when addressing shareholders vs in a courtroom,” writes Rasgon, “however, in this case we find the magnitude of the disparity troubling."

“Indeed, it appears from the company's courtroom statements that they do in fact consider contagion to be a real risk, and likely happening as we speak given their (and their attorney's) own words suggest the actions from the parties involved in the two disputes are intertwined."

Rasgon takes as his point of departure his conversation with company management on July 19th, when Qualcomm disclosed that a second customer had decided to withhold royalty payments, following the months-long battle with Apple over that matter.

Rasgon has speculated the second company withholding royalties is Chinese telecoms equipment giant Huawei.

In the exchange in July, Rasgon asked president Derek Aberle, during the company conference call, about whether the second recalcitrant customer meant the Apple dispute was leading to “contagion” in Qualcomm’s business.

Rasgon asked Aberle, who will leave Qualcomm in coming months, "how do we gain conviction that we don't see further contagion, further spreading of this to other customers, given this seems to be bleeding out across the rest of your business?"

Aberle, in his response, said “I don't think, as we sit here, we have any indication that that this is somehow going to result in a bunch of other licensees deciding not to report and pay royalties."

However, Rasgon cites recent oral arguments by Qualcomm counsel Evan Chesler of Cravath, Swaine & Moore on August 18th, in the Apple suit, in which the lawyer implies Apple risking far greater harm to Qualcomm’s business that sounds more like contagion:

One of the largest handset manufacturers in the world has now told us that they have been watching the Apple litigation and they are no longer paying us .Ifyou look at the pe rce ntage o f the han dsets that ar e made each ye ar th at are now being m ade by pe ople who h ave just unilater ally stopped paying us, it's approximately one out of every four handsets that will be made is being made by someone who just decided not to pay us. The house is on fire, Your Honor, when one of the largest manufacturers in the world says, "I am watching what is going on there, and I am telling you that I am now stopp ing all payments to you as well .” It ought not to be the case, respectfully, Your Honor, that the house has to burn down before we can restore the status quo . It is on fire. I don't think there is any question about that.

Rasgon’s take-away from the disparity in remarks is that “we see little likelihood of a settlement with AAPL anytime soon, and these recent legal disclosures do not fill us with additional confidence."

Reached for comment today, a Qualcomm spokesperson replied to me in email, “the motion is pending before the court so we are not able to comment."

Facebook shares drop almost 7% on Friday's disclosure of mishandling of user data by the consulting firm Cambridge Analytica, KLA-Tencor buys fellow chip equipment maker Orbotech, Deutsche Bank analysts are bullish on fiber optics name II-VI but negative on Arista Networks, GrubHub stock is getting pricey according to Stifel analyst John Egbert, Fitbit finds a new believer in Craig-Hallum's Alex Fuhrman, ex-chairman Paul Jacobs of Qualcomm is hoping analysts will vote in sympathy with him at the company's shareholder meeting on Friday, Dell topped server sales in Q4 and bumped aside Hewlett Packard Enterprise, Google's Diane Greene is mulling a big acquisition to boost the company's cloud services, Apple is moving forward with its own display technology called "micro LED," and Oracle is set to report results after the closing bell.

"While it's background noise for investors in the near-term, with the News Feed overhaul and other actions that Facebook has implemented over the past few months, its clear with more 'heat in
the kitchen from the Beltway' that further modest changes to their business model around advertising and news feeds/content could be in store over the next 12 to 18 months," analyst Daniel Ives wrote.

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